MMORPGs make up Shanda’s largest reporting segment, with 82% of revenues in FY 2007. However, these sales are largely earned from two MMORPG titles, Mir 2 and Woool, which were released in 2001 and 2003, respectively. These two titles are nearing their end-of-life and as such the company has begun licensing new games from foreign companies in efforts to find a new blockbuster hit, in addition to its other operations (casual gaming, associated gaming sales, as well as the EZ initiative).
In 2007, Shanda was the #1 market player in the Chinese Online-gaming market by revenues , despite its transition to a new business model, competing against The9 (NCTY), Netease.com (NTES), and other gaming operators that monopolize the time and money of many Chinese youths. The company chose to move from a pay-to-play model based on play time, to a new free-to-play model where revenue is earned from micro-transactions made in the game for premium content. This move was largely made due to the end-of-life of their main titles. This move initially dented revenue and margins in 2006, lowering from ¥1,896.6MM (FY2005) to ¥1,654.5 (FY 2006), and operating margin from 33% to 23%. However the margin structure has improved in 2007, with revenues growing 50% and margins expanding to 41%. as the new-business structure matured and gamers be came comfortable with the new transaction model. It remains to be seen how the title end-of-life and the development of new businesses will play out in Shanda’s future, but the markets' expectations for China’s #1 online-gaming player are very high
The company generates revenue in three primary reporting segments.
Fore more information about the split between licensed/unlicensed, see the 20-F
Margin structure changes due to business model
Primary competitors are Chinese operators of online-games. Although there is some competition from Foreigners, they are limited by Chinese law from achieving market penetration, since any Mainland Chinese venture has to be more than 50% Chinese owned/operated. Therefore, Shanda’s primary competitors are:
In 2007, the Chinese MMO market size was estimated at $1.66 BN. The major players in this market were Shanda, Netease, Giant Interact, The9, and Perfect World. Shanda's Market share was approximately 20% by revenue generation.
|China MMO Revenue Share ($MM)||2007|